German bond yields hover near more than two-month highs

June 8, 2020: Yields on top-rated German government bonds dipped on Monday, but stayed within sight of more than two-month highs hit last week on the back of improving sentiment in world markets.

Progress towards a European recovery fund, more fiscal spending in Germany and Thursday's decision by the European Central Bank to expand its emergency stimulus scheme by 600 billion euros have boosted hopes for a swift economic recovery from the coronavirus shock.

Data on Monday showing German industrial output posted its steepest plunge on record in April, had only a muted impact on a market given hope by an easing of lockdown restrictions in major economies.

In early trade, Germany's benchmark 10-year Bund yield was down just 1 basis point at -0.28% -- holding near more than two month highs hit on Friday, when news of an unexpected improvement in the U.S. jobs markets added to the selloff in major developed bond markets.

The Bund yield is up 25 bps from where it traded a month ago, and last week it notched up its biggest weekly rise in almost three months. U.S. Treasury yields also hit their highest levels since March on Friday and Swiss 10-year bond yields hit two-month highs on Monday.

Most other 10-year bond yields in higher-rated states across the euro area were also around one bps lower on the day, while borrowing costs in lower-rated Italy edged up.

Focus is on ECB chief Christine Lagarde's virtual hearing with the Committee on Economic and Monetary Affairs of the European Parliament later in the day.

"It (the hearing) should foster the supportive backdrop for European government bond spreads," said Rainer Guntermann, rates strategist at Commerzbank.

"Lagarde should reiterate the pro-active stance the ECB is taking during the crisis, and probably beyond, also stressing the flexible approach under the PEPP," he said referring to the ECB's Pandemic Emergency Purchase Programme.

 Reuters